Financial Statements

What Are 決算書?

The 決算書 (kessan-sho) is the collective term for a company's financial statements in Japanese. Also called 計算書類 (keisan shorui) under the Companies Act, these documents provide a comprehensive picture of a company's financial position and performance over the fiscal year. Every company in Japan, regardless of size, must prepare financial statements annually.

Financial statements serve multiple purposes: they are filed with the tax return, presented to shareholders for approval, provided to banks as part of loan applications, and shared with investors and business partners during due diligence.

Components of Financial Statements

貸借対照表 (Taishaku Taishohyo) — Balance Sheet

The balance sheet shows the company's financial position at the end of the fiscal year, listing assets (資産), liabilities (負債), and net assets (純資産). It follows the standard accounting equation: Assets = Liabilities + Net Assets. Japanese balance sheets are typically presented in the "account form" (勘定式) with assets on the left and liabilities/equity on the right.

損益計算書 (Son'eki Keisansho) — Profit and Loss Statement

The income statement (commonly referred to as the PL) shows the company's revenues, expenses, and profit or loss for the fiscal year. Japanese PL statements typically break down profit into several levels: operating profit (営業利益), ordinary profit (経常利益), and net profit (当期純利益). The concept of "ordinary profit" is somewhat unique to Japanese accounting and includes recurring non-operating items like interest income and expense.

株主資本等変動計算書 (Kabunushi Shihon-tou Hendou Keisansho) — Statement of Changes in Equity

This statement shows the changes in each component of shareholders' equity during the fiscal year, including capital stock, capital surplus, retained earnings, and treasury stock. It reconciles the beginning and ending balances of each equity component.

個別注記表 (Kobetsu Chukihyo) — Notes to Financial Statements

The notes provide additional detail and explanations that supplement the numerical data in the other financial statements. They include information about significant accounting policies, contingent liabilities, related party transactions, and other matters necessary for a complete understanding of the financial statements.

附属明細書 (Fuzoku Meisaisho) — Supplementary Schedules

Supplementary schedules provide detailed breakdowns of items summarized in the main financial statements, such as detailed fixed asset schedules, reserve breakdowns, and receivable/payable aging. These are required under the Companies Act but are not filed with the tax return.

Filing Requirements

Japanese companies must file their financial statements as part of their corporate tax return (法人税申告書) with the tax office (税務署). The standard filing deadline is 2 months after the end of the fiscal year. For example, a company with a March 31 fiscal year end must file by May 31.

Companies can apply for a one-month extension (to 3 months after year end) if they meet certain conditions. The tax filing includes the financial statements plus detailed tax schedules (別表) that reconcile accounting income to taxable income.

Who Needs Them?

• Banks — lenders require financial statements (often the last 2–3 years) as part of loan applications and annual reviews of existing credit facilities
• Investors — potential investors review financial statements during due diligence before making equity investments
• Business partners — major counterparties may request financial statements to assess creditworthiness before entering into significant contracts
• Shareholders — financial statements must be presented to shareholders for approval at the annual general meeting
• Parent companies — foreign parent companies need subsidiary financial statements for consolidated reporting

Audit Requirements

Statutory audits by independent auditors (会計監査人) are required only for large companies as defined by the Companies Act:

• Companies with stated capital of ¥500 million or more, or
• Companies with total liabilities of ¥20 billion or more

Small and medium-sized companies are not required to have their financial statements audited by an independent auditor, though they may choose to do so voluntarily. Companies with a company auditor (監査役) will have their financial statements reviewed by that internal auditor, but this is not the same as an independent external audit.

All publicly listed companies are required to have an independent audit regardless of size.

Fiscal Year in Japan

Japanese companies can choose any 12-month period as their fiscal year (事業年度). However, the most common choice is April 1 to March 31, which aligns with the Japanese government's fiscal year. This is the fiscal year used by most large Japanese corporations and is the default assumption when no fiscal year is specified.

That said, many companies, especially foreign-owned subsidiaries, use different fiscal years (January–December is common for subsidiaries of Western companies, October–September for some others). The fiscal year is specified in the company's 定款 (Articles of Incorporation).